Closing the last trading
day of the preceding week on a somber note, dropping 81 points in one day, the KSE 100
bounced back in a very strong manner breaking through 1850 with relative ease. This was
further augmented by positive developments regarding the banking and Oil and Gas sector.
By the end of the week the KSE 100 had broken through all resistance to close the week up
by 232 points at 1945.

We had stressed on the possibility of the market remaining firm. This
13.6% jump was largely supported by the announcements of various policy measures aimed at
increasing the operational efficiency and enhancing the rules and guidelines of the
banking sector. The 15% increase in furnace oil prices also spurred on the oil and gas
sector. In addition the granting of autonomy to eight oil and gas sector companies
indicates towards the efforts by the present government to expedite the privatization of
the oil and gas sector.

We had assumed that the break of 1850 would result in the KSE 100 to
move aggressively towards the 2050 levels, even breaking through that in the process. As
the market lingers on at 1950, any upside movement might still drive the market upwards,
largely as a result of any positive news regarding the fateful trip of President Clinton
in the absence of which the speculation could leave the market quite vulnerable.

For the coming week, we believe the KSE 100 will continue to remain
between 1950-2050. Within this trading range the nature of the market will turn quite
fragile. We believe that investors should tread with caution and reduce exposure to
reenter the market at pullbacks. Strength in the market will be derived from any policy
measure development in the oil and gas sector followed by that in the banking and textile
sector.

Oil and Gas Sector: Under Close Watch

 According to a news report, the government is considering the
proposal to allow the private units to import furnace oil.

 In addition the government has made the review of furnace oil a
monthly exercise, while POL prices will be reviewed after every quarter.

 This has been a major demand of the IPPs, especially Hubco,
which has repeatedly called upon the government to remove the restrictions and allow it to
import furnace oil for its use.

 Though the government continues to be well versed with the
notion of boosting revenues through high taxation of POL products, the recent deregulation
and linking of the local prices with international prices might give the government enough
space to actually go ahead with this planned step.

 Eight oil and gas sector companies have been given autonomy in a
major reshuffle in the sector.

 The government invites requests for proposals for financial
advisory services for the privatization of PSO.

 With the government simultaneously announcing a major reshuffle
in the petroleum sector, it seems that it is positioning the oil and gas sector for a
smoother privatization process. As it continues to remain on top of the governments
privatization list all efforts aimed at increasing operational efficiency in these
companies would allow for the successful privatization of the units up for sale.

Opening up the sector

The oil and Gas Sector has recently been the focus of close government
attention. We feel that this positive development as the government, by introducing an
efficient regulatory and operating framework, will expedite sector fundamentals to
improve. The recent linking of local POL product prices with international standards, the
announcement of a gas regulatory authority and finally the granting of autonomy to 8 oil
and gas sector units shows the government's attempts of allowing market forces to dictate
future trends.

WAPDA likely to bear the brunt of the blow... yet again

Though the government continues to be well versed with the notion of
boosting revenues through high taxation of POL products, the recent deregulation and
linking of the local prices with international prices might give the government enough
space to actually go ahead with this planned step. However, the Finance Minister has
hinted at keeping electricity tariffs at current levels.

If the government does not allow for an increase in power tariffs, this
cost increase will again have to be absorbed by WAPDA. Efforts to keep the masses happy by
keeping electricity tariffs low have taken their toll on WAPDA, which are visible quite
clearly.

Textile Sector might lead corporate growth

We continue to believe that strong earnings from corporate entities in
Pakistan should boost activity in the second half of CY00, mainly led by the textile
sector. On the flip side the rising oil prices do not augur well for the industrial
sector, which was just showing signs of recovery, as input costs will definitely rise. The
successful privatization of large government assets still remains the necessary catalyst
to maintain and encourage foreign interest in the local capital markets.

With this in mind, we believe the government has taken the right route
to privatization i.e. through the Oil and Gas sector due to the initial phases of
privatization already being completed in some units.

 The huge size of the transactions

 The international conformity of working standards in this
particular field.

 Much of the groundwork has already been achieved in the oil and
gas sector.

What the government desperately needs in terms of rejuvenating the
privatization process is one successful privatization, which has been eluding successive
governments. The size of any deal in this sector would be quite substantial thus allowing
the government to access handsome amount of funds. In addition this could set the
precedent for other relatively smaller unit to be privatized once the foreign investors
are assured of the capability of the government and the associated concerns of dealing
with a larger unit's privatization.

Another aspect favoring this sector are the almost identical norms used
in the operating of the various oil wells, pipelines and distribution companies globally.
In this aspect the government is sure to target the well-known global oil and gas sector
players and apprise them of the various investment opportunities available in Pakistan.

Looking at the recent maneuvers by the government with respect to the
oil and gas sector, the privatization process will definitely be kicked off by the Oil and
Gas sector. With all the pieces falling back into place, the prospects of reaching a
successful conclusion on this issue remain high. Though foreign investor interest would
very much be rekindled, the main source of apprehension still remains the lingering Hubco
issue. An early and amicable resolution could prove to be the final touches in removing
the obstacles to successful privatization. However it is still up to the government to
make sure to take the matter its full course culminating into a closed deal.